Shares of
MedPlus Health Services fell sharply on Tuesday, declining 15.83% to Rs 667.95 after the company reported a weaker-than-expected performance in the first quarter of FY27.
The decline came as investors reacted to pressure on profitability, with a contraction in gross margins and higher operating expenses offsetting healthy revenue growth. Despite the weak quarterly performance, brokerage Nomura maintained its Buy rating on the stock, citing the company’s long-term growth potential and store expansion strategy.
MedPlus reported a consolidated net profit of Rs 33 crore for the June 2026 quarter, down 21.7% year-on-year from Rs 42 crore in the same period last year. Revenue, however, remained strong, rising 21.9% year-on-year to Rs 1,880 crore compared with Rs 1,543 crore in Q1FY26.
Foreign brokerage Nomura highlighted that MedPlus delivered a weaker-than-expected Q1FY27 performance, despite a healthy 22% year-on-year rise in sales. Revenue was marginally ahead of estimates, but profitability missed expectations due to margin compression and higher costs.
Gross profit increased only 14% year-on-year, marking the slowest growth in four years, while gross margin declined 163 basis points. According to Nomura, the decline was largely driven by lower contribution from the company’s private label pharma business, which grew just 2% year-on-year. The increasing share of franchisee-led sales also contributed to margin pressure.
Operating expenses remained a key concern during the quarter. Pharmacy salary expenses surged 30% year-on-year, including a 14% increase on a per-store basis, while non-pharmacy overhead expenses climbed 34%.
As a result, operating EBITDA declined 11% year-on-year and came in 29% below Nomura’s estimates. Net profit was also 34% below the brokerage’s forecast.MedPlus continued its aggressive expansion strategy, adding 146 stores during the quarter, largely through the franchise model. The company’s total store network increased to 5,476 outlets, with franchise stores accounting for nearly 12% of the network.
Franchisee sales contribution increased significantly to 5.4% of pharmacy revenue in Q1FY27, compared with 2.5% a year ago. While the model supports faster expansion, it also impacted overall margins due to a higher mix of lower-margin franchise revenue.
The company’s mature pharmacy network delivered a healthy 12% year-on-year growth, outperforming broader industry growth trends, according to Nomura.
MedPlus’ private label pharma business remained a key pressure point, growing only 2% year-on-year during the quarter. In comparison, branded pharma, branded non-pharma, and private label pharma segments grew 20%, 17%, and 30%, respectively.
The contribution of private label products to own-store revenue declined to 11.5% in Q1FY27 from 13.4% in Q1FY26, affecting the company’s margin profile. Management attributed around 120 basis points of gross margin decline to lower private label contribution and another 50 basis points to the increased share of franchise sales.
Brokerage maintains buy Rating despite weak quarter
Despite the near-term earnings pressure, Nomura retained its Buy rating on MedPlus Health Services and maintained its target price of Rs 1,190 based on a discounted cash flow valuation.
The brokerage believes the company’s expanding store network, improving franchise presence, and long-term growth opportunity remain intact. MedPlus currently trades at around 24x FY27 estimated EV/operating EBITDA, while Nomura’s valuation implies EV/operating EBITDA multiples of 30x and 22x for FY27 and FY28 estimates, respectively.
New growth initiatives add to future investment plans
MedPlus’ board has approved additional capital expenditure plans, including a food park with a cold-press oil extraction unit in Hyderabad, requiring an estimated investment of around Rs 40 crore.
The company has also approved a concierge health and wellness services facility in Hyderabad, involving an estimated investment of approximately Rs 115 crore, including around Rs 90 crore in capital expenditure.
While Q1FY27 highlighted profitability challenges from rising costs and margin pressure, investors will closely track whether MedPlus can convert its rapid store expansion into sustainable earnings growth in the coming quarters.
(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)
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